Brussels says state aid deal for Hinkley Point is illegal
Tim Webb Energy Editor
The Times, 2014-02-01
Plans
by EDF Energy to build Britain's first nuclear reactor for a generation
were in disarray last night after Brussels said that the controversial
subsidy deal agreed with the Government could amount to illegal state
aid.
In
a withering initial assessment, the European Commission said that
consumers would end up paying up to £17.6 billion of "super-normal"
subsidies via their energy bills to EDF Energy, which is controlled by
the French Government.
Its
most damning objection was that the subsidies were entirely
unnecessary, since nuclear power would become economic by the end of the
next decade, according to the Government's own forecasts.
Ed
Davey, the Energy Secretary, announced an agreement in October to
guarantee paying almost twice the market rate of electricity for 35
years to EDF Energy to build the Hinkley Point reactor project at a cost
of £16 billion.
During
the preceding year of tortuous negotiations, the French had threatened
to walk away several times. In the end, most of their demands for
subsidies and government loan guarantees were met, but the full terms
remain a secret.
The
Somerset project can go ahead only if the Commission gives it the green
light after carrying out a state aid investigation, which will take at
least until the summer to conclude.
The
highly critical 70-page report, which is subject to consultation, will
trigger a furious behind-the-scenes twin lobbying effort in Brussels by
ministers and officials from Britain and France.
Peter
Atherton, an analyst at Liberum Capital, said that it was now primarily
down to the French Government, which owns 85 per cent of EDF Energy's
parent company, to wield its political influence to rescue the deal.
"It's
hard to see how the Commission can get from this initial assessment to
green-lighting the subsidy contract as it's written at the moment," he
said. "This may end up being a political decision - the French have
their ways of operating in Brussels."
The
Commission said that subsidies that already exist, such as the carbon
tax, would make nuclear economic by 2027, only four years after the
first reactor at Hinkley Point is due to come on stream.
According
to its assessment, the new subsidies may be illegal under state aid
rules because they favour a specific technology, rather than allowing
other low-carbon types of power station such as biomass to bid for the
funding.
As well as distorting the market, they could result in a "substantial transfer of wealth" from consumers to EDF Energy.
The
report challenged the Government's own calculation that EDF Energy
would need to be allowed to make a 10 per cent return in order to invest
in Hinkley Point, which the Commission said was not justified.
Including
the profits that Hinkley Point would make over its full 60-year
lifetime, the Commission said that "over-compensation" was possible and
that subsidies paid by consumers could total £17.6 billion.
The
assessment also shot down another of the Government's justifications
for subsidising Hinkley Point, which was that it would avert blackouts.
David
Cameron assured MPs last month that he had "looked energy companies in
the eye" when seeking assurances that they would keep the lights on,
despite the generating reserve rapidly shrinking in the next several
years. However, the Commission said that Hinkley Point would come online
much too late to avert the looming generation crunch.
Michael
Fallon, the Energy Minister, said that the Government had expected a
full-scale competition inquiry from the Commission. "This process is
normal and we built it into our planning for Hinkley Point C.
"We'll
be using the consultation period to show that this project meets state
aid rules, that it will cut carbon in Britain's energy sector and
improve our energy security in a way that's good value for money."